Larry Williams, Former State Treasurer Ordered Pension Funds to Go to a Losing Bidder, Hartford Courant (Apr. 18, 1995)
On the eve of stepping down as Connecticut Treasurer, Joseph Suggs Jr. attempted to allocate $20 million in state pension funds to investment manager Ark Capital Management, which had lost in an open competition for the contract. The order was dated Dec. 29, five days before Suggs relinquished the office to Republican Christopher Burnham.
When the state decided to place $50 million with a new manager, it received proposals from seven firms. Ark was one of three that did not make the initial screening, primarily because it had not been in business for the requisite two years.
Ned Lamont, chairman of the Investment Advisory Council that screens investment selections, said Suggs actions "circumvented all the processes that have been put in place regarding the IAC. At least in the advisory sense, we have the right to sign off."
Ark is run by Michael Granger, who has allies in the state legislature's Black and Puerto Rican Caucus. Caucus members asked to meet with Burnham after learning that he had put the Ark contract on hold.
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The Politics of Fund Raising, From the Notes They Left Behind, Hartford Courant (Apr. 30, 1995)
On November 11, 1993, five days before Joseph Suggs Jr. launched his campaign for a full term as state Treasurer, he and his brain trust met to strategize. One issue was whether to accept contributions from investment bankers who did business with the state, and risk public criticism that could damage his chances.
Notes from the meeting inadvertently left behind when Suggs vacated his offices show that Suggs decided to "Take high road" and announce that he would not accept contributions from investment bankers.
What went unannounced, however, was his decision to look for other sources of funds from firms doing business with the state, as reflected in the notes: "What alternative sources . . . can we access? (unregulated by SEC)."
Lists of individuals and firms with treasury contacts were compiled. These consisted primarily of bond attorneys and managers of pension-fund assets. Some lists included figures on their annual treasury fees, which range from less than $100,000 to more than $1 million. In all, the state pays about $25 million annually for these services - about five time its fees to investment bankers.
On computer printouts of all contributors, people with there firms were coded "TB" for "treasury business now." A so-called "unpublished finance committee" targeted financial firms in New York, Boston, Atlanta, Chicago and Los Angeles.
How did it go? An analysis of Suggs' finance reports by The Courant shows about 160 of 1,400 contributors were owners or employees of firms with treasury contracts. Of 86 firms that did business with the treasurer, other than investment bankers, members of 46 gave about $90,000 to Suggs, accounting for about 17% of his receipts.
That Suggs was accepting such donations became known during the campaign, and his Republican challenger Christopher Burnham pounced on the practice, branding it the "Suggs shakedown."
Al Maiorino, who raised money as well as managed Suggs' campaign, said it was true that the campaign targeted firms that had treasury business, but not true that they were pressured to give. He said he remembered one investment manager in Boston, however, who became irate and accused him of "blackmail."
Records show that Suggs fired two asset-management firms after he took office that had not contributed to his campaign.
Burnham has proposed legislation, awaiting action in the state Senate, that would write this policy into law. It would bar a firm whose executives give to a treasurer's campaign from doing business for four years.
When asked why there was a difference between soliciting contributions from investment bankers on the one hand, and lawyers and asset managers on the other, Suggs specifically pointed to an SEC rule that banned contributions by investment bankers, and noted that there was no equivalent rule applicable to lawyers and asset managers.
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Lindsay Wyatt, Paring the Politics from a Public Plan, Pension Management (Nov. 1, 1995)
Since taking office, Connecticut Treasurer Christopher Burnham has made a point of separating politics and money. He's taken a number of steps to clean up the Treasurer's office.
His first step was to conduct an internal management study. As a result of the study, he eliminated 15 positions from the office's in-house trading department, the only one of its kind in the nation. According to Burnham, its raison d'etre was clearly political.
"Think of the power it gives a treasurer to selected 160 buddies to execute orders on a $6 billion equity portfolio," Burnham said. "Every was budgeted. We'd give each one a minimum of about $50,000 in commission each year. Some got a little more. Maybe they had contributed a little more to the campaign - who knows? The point is, it was a disaster."
Burnham instituted a strict office ethics policy that prohibits Treasury staff from accepting gifts. Burnham also supports the "Anti-Shakedown Bill," which prohibits both incumbent and challenger candidates for the office of state treasurer from accepting campaign contributions from executives whose firms do business with the Treasurer's office. If such contributions occur, the firm is prohibited from performing services for the Treasurer for as long as that Treasurer holds office.
Burnham also has been trimming the number of money managers. "We have more money managers per dollar than any other fund in the nation," Mr. Burnham says. Why so many? "I think politics got us there," he suggests. "I think the whole notion of 'pay-to-play,' campaign contributions flowing into fund reelection efforts, not only was wrong, but adversely influenced our treasury."
Burnham is seeking to divest himself of the exclusive fiduciary of the fund. He supports giving the authority to a board of trustees with an absolute requirement that they have strong financial backgrounds.
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Charles Gasparino and Jonathan Axelrod, Political Money May Sway Business of Public Pensions, The Wall Street Journal (Mar. 24, 1997)
Connecticut state Treasurer Christopher Burnham sponsored a 1995 law that prevents his office and any candidate running for the post from accepting contributions from pension-fund executives.
But even he has found himself caught up in the crossfire. In summer 1996, Burnham accepted a free trip to Asia, courtesy of what he thought was a nonprofit group, the American Pacific Rim Foundation. The foundation is headed by a politically active businesswoman, Faye Huang, who has close ties to California Treasurer Matt Fong. Fong says Huang "is involved in pension-fund business investments between the U.S. and the Pacific Rim."
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Steve Bailey and Steven Syre, Critics Hit State Street Global, Boston Globe (May 13, 1998)
Nick Lopardo, who runs State Street Global, the third largest money manager in the world, described his plan to contribute to the campaign of Joseph Suggs Jr., Connecticut's state Treasurer, at a time when State Street was bidding for custody business from the state. "I will make a personal $1,000 contrib to Suggs' re-election campaign since it will be difficult for SSBC [State Street Bank Corp.] as a corp to do so given the custody bid."
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Jon Lender, Silvester's Picks Heavy on the Political in His Final Weeks, The Hartford Courant (Sep. 22, 1999)
During his final weeks as state treasurer late in 1998, Republican Paul Silvester appointed an intriguing assortment of political names to advisory comittees for investment firms that handle state pension funds. The list of appointees included:
Ben Andrews, Thiesfield and Stack have surfaced in a federal corruption investigation of Silvester's 17-month tenure, from 1997 to January 1998. The probe has focused on whether proceeds from one or more finder's fees were kicked back to Silvester or members of his family. Silvester had denied any wrongdoing.
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Adam Gorlick, Former State Treasurer Pleads Guilty to Accepting Kickbacks, Associated Press (Sep. 24, 1999)
Former Connecticut State Treasurer Paul Silvester faces up to 40 years in prison after pleading guilty to charges of accepting $100,000 in kickbacks.
Prosecutors said Silvester was paid thousands of dollars by middlemen who get states to invest their pension money with certain financial firms.
"He used hit authority as state treasurer to invest money not solely in the best interest of the funds, but to guarantee wealth for himself, his friends and his colleagues," U.S. Attorney Stephen Robinson told the Gorlick.
The scheme included Silvester's brother and brother-in-law, who also pleaded guilty to federal corruption charges and face prison time
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Silvester Arranged Fund-Raiser for Rowland at Home of Pension-Fund Investor, Associated Press (Sep. 30, 1999)
Former Connecticut State Treasurer Paul Silvester arranged a fund-raiser for Connecticut Gov. John Rowland at the home of Apollo Real Estate Advisors president William Mack, whose firm had just received a $75 million investment from the state's pension fund, the Hartford Courant reported.
State law would have prohibited Mack from contributing to Silvester's campaign, but there is no law that prevented him from raising money for Rowland.
Silvester hosted another fund-raiser himself for Rowland in the Met-Life building in New York. On March 19, 1998, 12 days before the fund-raisers, Silvester had closed a deal committing $75 million to the Apollo Real Estate Fund III.
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SEC v. Paul Silvester, Litigation Release No. 16759 (Oct. 10, 2000)
The Securities and Exchange Commission announced that it filed a civil fraud action against Paul J. Silvester, the former Treasurer of the State of Connecticut, two private equity firms, three of their officers, and five others involved in a fraudulent scheme in connection with the investment of state pension fund money.
The Commission alleged that the defendants participated in a scheme where Silvester awarded investments of hundreds of millions of dollars of state pension fund money in exchange for lucrative fees paid by the private equity firms to Silvester's friends and political associates. According to the complaint, Silvester, who served as Treasurer from July 1997 until January 1999, solicited two private equity firms, Landmark Partners, Inc. and Triumph Capital Group, Inc., to pay substantial consulting or finder's fees to Silvester's friends. In order to secure the investment of pension fund money, Landmark and Triumph agreed to pay the requested fees. Silvester then demanded and received kickbacks of the fees from his friends.
The Commission alleged that Silvester, Triumph, Landmark, and certain of the firms' officers violated their fiduciary duties by failing to disclose the quid pro quo. Landmark is headquartered in Simsbury, Connecticut. Triumph is headquartered in Boston, Massachusetts, and also maintains offices in Hartford, Connecticut, Palm Beach, Florida, and San Francisco and Los Angeles, California.
The complaint alleges that, in return for investing $150 million of state pension funds with Landmark in 1998, Silvester solicited and Landmark agreed to pay $1.5 million in finder's fees to Silvester's friend, Ben F. Andrews, Jr. Andrews agreed to kick back part of the finder's fee to Silvester using another friend of Silvester, Christopher A. Stack, as an intermediary. Andrews arranged for Landmark to split the finder's fee between him and Stack (who was paid through his consulting firm, KCATS, LLC), and Stack then funneled part of his Landmark fee to Silvester through an intermediary. Jerome L. Wilson, another Landmark consultant, acted as an intermediary in arranging for Landmark to hire and pay Andrews and Stack. Stanley F. Alfeld, chairman of Landmark, agreed to hire Andrews. Wilson later notified Alfeld that Andrews would split his fee with KCATS, Stack's consulting firm. At Alfeld's request, Wilson also arranged for his employer to act as a conduit for payment from Landmark to Andrews and Stack.
The complaint also alleges that, in return for investing $200 million with Triumph shortly after losing the November 1998 election, Silvester solicited and Frederick W. McCarthy and Charles B. Spadoni, Triumph's president and general counsel, respectively, agreed to provide $1 million consulting contracts to Silvester's friends, Stack and Lisa Thiesfield. Stack then funneled part of his Triumph feeto Silvester through another intermediary. Silvester also requested and expected to receive part of Thiesfield's Triumph fee.
Defendants Silvester, Stack and KCATS have agreed to settle the Commission's charges, without admitting or denying the allegations contained in the Commission's complaint, by entering consent agreements that enjoin them from future violations of the antifraud provisions of the Securities Act, the Exchange Act, and the Advisers Act. Silvester has agreed to pay $10,500, representing the proceeds he received from the conduct alleged in the complaint. Stack and KCATS have agreed, jointly and severally, to pay $300,667, representing the proceeds they received and retained from the conduct alleged in the complaint. Proposed final judgments by consent against Silvester, Stack and KCATS were filed with the complaint.
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David Vise, D.C. Pension Plan Mishandled, The Washington Post (Aug. 15, 1993)
Politics has played a role in the poor performance of the retirement plan for District police, firefighters, teachers and judges, which is $5 billion underfunded. The board is made up of representatives of employee groups, plus five members who are political appointees.
"Washington, D.C., is the political capital of the world. A pension fund in that city is a political operation. What would you expect?" asked one money manager, who asked to remain anonymous to protect his relationship with the pension board.
Last year, the board hired Atalanta/Sosnoff Capital Corp. to invest 100 million in stocks, despite allegations that it was the worst performing managers of all the candidates interviewed. The firm had earlier donated $1,000 to Mayor Sharon Pratt Kelly's political action committee, and $5,000 to a charity run by board member Rose Elder.
Board members have benefited from the largesse of firms doing business with the pension fund, traveling to Europe, Hawaii, Palm Springs, Lake Tahoe, and Daytona Beach. There are no limits on the number of foreign trips board members are permitted to accept from investment firms, although the board must approve the travel. Some members questioned whether it was appropriate for money managers to pay for these trips, but others on the board said the arrangement doesn't influence their decisions on which firms to hire.
"The board has been an extraordinarily political institution," said Dallas Salisbury, head of the Employee Benefits Research Institute, a Washington-based pension research firm. "When you have a plan that is in the kind of shape it is in, and then have that entire board as interest-group dominated and politically dominated as it is . . . it sort of hits as another example of the loss of confidence in the District's ability to manage itself."
Money managers eager for pension business try to win the favor of board members, and several money managers said they believed one of the ways to curry favor with the pension board and its chairman was to donate money to the Lee Elder Invitational golf tournament.
The stated purpose of the tournament, which Rose Elder has run for 23 years, is to raise money to provide college scholarships for minorities. Tax returns for recent years show that most of the money donated to the golf tournament has gone to pay expenses. In some years, Rose Elder and firms she owns were paid more than the scholarship fund gave out to students.
In 1989, for example, the scholarship fund had more than $400,000 in revenue, but paid out only $4,000 in scholarships. Rose Elder was paid $30,692 that year as president of the scholarship fund.
During Elder's 1992-1993 tenure as chairman of the pension board, 16 firms that earned fees from the D.C. pension fund - about half of all the outside money managers it hired - contributed tens of thousands of dollars to the golf tournament. Other investment firms that were eager to be hired by the pension fund, including Boston-based Fidelity Investments, also made donations.
Elder also accepted free foreign travel from investment firms. At one pension meeting, Elder, who already had visited London and Berlin, requested permission to accept trips to Italy, Australia, the Ivory Coast and South Africa.
The board raised questions about Elder's conflicts of interest, and she pledged to provide more information about her fund-raising efforts. One piece of information she never provided was that she and her firms received fees from the Lee Elder Scholarship Fund. She also failed to report her income from the Fund on annual personal financial disclosure statements that are required to be filed with Congress, the D.C. Council and the mayor's office.
In the midst of this imbroglio, Elder sent out brochures soliciting contributions from investment firms that assured them that the Fund's counsel had determined that the contributions did not create a conflict of interest.
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Janel Aschkenasy, No Gifts, Please! We're Trustees, Plan Sponsor (May 1998)
The $782 million Fulton County (Georgia) Employees' retirement System has put restrictions in force that closely resemble those adopted by the California Public Employee Retirement System. Fulton County commissioners who serve on the retirement board may not solicit or receive political contributions from vendors or prospective vendors, according to rules the board adopted in February.
Ann Hardie, Donations Pay Interest for Financial Advisers, The Atlanta-Journal Constitution (Oct. 18, 1999)
Most of the 11 investment advisers managing the $17.7 billion stock portion of Georgia's two largest pension plans - for teachers and for state employees - have all made contributions to officials who can influence manages the plans' assets.
Eight of the firms of their executives contributed a combined total of $49,800 to the campaign of Georgia Governor Roy Barnes, who appoints several trustees of the boards that control the funds.
In recent months, the board hired four additional advisers to manage the $1.2 billion in stocks. Those firms, along with their executives, all contributed to Barnes' campaign. One such firm, Synovus, contributed $47,750 to Barnes and the Georgia Democratic Party.
For one of the firms to qualify, NCM Capital Management of North Carolina, the boards of both pension funds had to change their rules - at the suggestion of the governor -- requiring firms to have an office in Georgia that actually manages the money.
Peter Elstrom, Illinois Public Funds Hire Political Players, Pensions & Investments (Aug. 22, 1994)
A two-month investigation by Crain's Chicago Business has revealed that Cook County, the state of Illinois and four Chicago pension funds all are giving lucrative contracts to firms that help finance the campaigns of the politicians who have influence over the pension funds.
Campaign contributions are the most quantifiable aspect of the multifaceted relationship between pols and the managers. But it's the mix of sometimes modest contributions, coupled with political connections and clout-heavy friendships, that fosters a cozy relationship between politicians and money managers.
"As a public pension fund manager, you figure (contributions) come with the territory," said one money manager.
Capital Associates Realty Advisors collected $2.4 million in fees from 1991 to 1993. Thomas Rosenberg, a co-founder of the firm, is a long-time fund-raiser for Democratic candidates, including former presidential hopefuls Walter Mondale and Michael Dukakis. The firm and its principal donated $25,000 to Mayor Daley between 1989 and 1993.
Weiss Peck is responsible for about $275 million in Cook County and the city workers' pension money - worth about $800,000 a year in fees. Weiss Peck's success coincided with the arrival of James Kiley at the firm. Kiley, who was an assistant to Governor Jim Thompson for seven years, has given $4,500 to Cook County Board President Richard Phelan and $2,500 each to Cook County Rosewell and Mayor Daley.
The Cook County pension fund has continued to retain Weiss Peck despite returns that put it among the bottom 20% of similar money managers. The Laborers' board voted to give Weiss Peck $32 million to manage, although no other managers were considered.
Goldman Sachs has donated $101,500 to Phelan's campaigns over the last five years, including $84,500 from a partner in the firm's Chicago office, and collected $835,378 in fees from the Cook County pension fund over the same period. Its annual return of 10.5% significantly lags the 14.4% return of the median balanced manager.
Dean Witter Reynolds, which made a string of donations to Phelan, capped by a $7,500 check in 1991, collected $374,302 in fees in 1992 and 1993. After the firm was hired to manage about $18 million for the Cook County pension fund in 1991, its performance fell behind two other balanced managers. Nonetheless, the pension fund increased Dean Witter's assets under management to about $100 million by the end of 1993.
The Chicago Policemen's pension fund has $55 million in three Heitman Financial real estate funds that have averaged losses of almost 10% per year from 1991 to 1993. The firm donated $6,700 to Mayor Daley from 1989 to 1993.
A money manager for the city's Municipal fund, Ariel Capital Management and its head, John Rogers Jr., donate to many top local politicians. From 1989 to 1993, the firm and its president have given $19,725 to Mayor Daley, $18,450 to Gov. Edgar, $5,500 to Rosewell and $3,900 to Phelan.
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Charles Gasparino and Jonathan Axelrod, Political Money May Sway Business of Public Pensions, The Wall Street Journal (Mar. 24, 1997)
Bear Stearns & Co., a big Wall Street underwriter, has relied on politically connected "solicitors," or lobbyists, some of whom are politicians themselves, to win public pension assignments. The company, for example, paid a "finder's fee," according to Joliet, Illinois' Deputy Fire Chief Joe Drick, to a former Illinois state senator, Thomas Dunn, currently a county judge, for his assistance in winning a contract to manage part of the Joliet Fire Department's pension fund. Bear Stearns spokeswoman Hannah Burns says: "You do it to win business."
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Michael Sneed, Feds Serve Santos a 'Routine' Subpoena, Chicago Sun-Times (Sep. 6, 1998)
The feds visited City Treasurer Miriam Santos' office last week with a subpoena for campaign documents and treasurer records. "We have no comment on that," said Santos' press secretary, Laurie Dittman, who later called back and said: "The city treasurer's office was served with a subpoena for documents in what was described as a routine subpoena." Campaign manager Alton Miller said he had no idea what the feds are after. Rumor is they are looking into city pension funds.
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Bob Secter, Santos Indicted on Extortion, Fraud Charges, Treasurer Accused of Squeezing Banks, Chicago Tribune (Jan. 27, 1999)
Chicago City Treasurer Miriam Santos was indicted by a federal grand jury on a dozen counts of extortion, mail fraud and wire fraud stemming from her unsuccessful campaign for the Illinois attorney general post.
Santos was accused of using the power of the city treasurer's office to squeeze area banks and brokerage firms for campaign contributions by threatening to withhold lucrative city contracts from them.
The indictment alleges that Santos ordered an official in her office to solicit campaign contributions of $10,000 to $25,000 from several brokerage firms that got city investment business. When firms refused to give, Santos allegedly froze them out of new investments. She also was accused of pressuring Citibank F.S.B., which manages $1.4 billion in city assets, to host a political fundraiser.
Santos' top deputy, John Henry, under orders from Santos, allegedly called at least seven brokerage houses asking for $10,000 apiece, according to the indictment. Eight days later, when none of the firms had contributed, Santos is accused of directing Henry to "blacklist" them and choke off city business. After that, the government alleges, none of the seven firms received city business until Sep. 18, 1998, about a week after the Santos probe was made public.
The federal inquiry reportedly began after a representative of Fuji Securities, one of the seven blacklisted firms, taped a shakedown call from Santos' office and notified federal investigators. "This is no choice," said Santos in a taped phone conversation with Fuji's Genie Polharsky, "it's time for people to belly up."
Raising funds from businesses to which you give contracts is a legal, albeit controversial, tradition for Chicago politicians. U.S. Attorney Scott Lassar said Santos crossed the legal line when an "implicit" wink or nod turned into "explicit" threats.
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Evelyne Girardet, A Public Official Is Accused, Associated Press (Jan. 30, 1999)
Chicago Treasurer Miriam Santos has been charged with a dozen counts of extortion and fraud for allegedly blacklisting banks and brokerage houses doing business with the city after they refused to contribute to her failed 1998 bid for Illinois attorney general.
"The critical factor here is an explicit quid-pro-quo situation," said Kent Redfield, professor of political studies at the University of Illinois in Springfield. "The U.S. Attorney's office is saying that she told these contractors 'If you don't do this, I will do this.'"
That, according to Redfield and other political analysts, is just not the way business is usually done in Illinois. "The political culture in this state is one of deals and compromises, political influences and patronage," Redfield said. Generally, he said, the exchange of benefits in return for political contributions is understood but not spoken.
Jim Nowlan, a former state legislator and a senior fellow at the University of Illinois, recalls being contacted in the mid-1980s by a civil engineer frustrated at losing bids on state highway projects. Nowlan said he told the engineer there was talk of people writing check to then-Gov. James Thompson's campaign fund and sending them to a certain person in the Illinois Department of Transportation to get contracts.
The engineer eventually got his contracts, Nowlan said.
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Mike Robinson, Was Candidate's Fund-Raising Extortion or Politics As Usual? Associated Press (Apr. 13, 1999)
The indictment of Chicago Treasurer Miriam Santos for extortion and fraud in connection with the solicitation of campaign contributions firms doing business with the city and the blacklisting of noncontributors, is illuminating the murky legal status of pay-to-play practices.
U.S. Attorney Scott Lassar said that "what's crossing the line is when money's extorted from them under threat of not being able to do business." He then underlined just how ethically and legally murky campaign finance often seems by adding: "If there is an implicit understanding, that would not be a crime."
That remark raised eyebrows, and when he was asked about it several days later, Lassar said an implicit understanding could also be a crime but would be very difficult to prove.
The question of what is and is not allowable is nothing new.
"You call people and ask for contributions and sometimes they feel obligated to do it for fear they may lose economically," says former U.S. Sen. Paul Simon. "For people who run for governor or senator, whatever the office, even president of the United States, it is very easy sometimes to give a little nod, give an arbitrary noncompetitive bid sometimes to somebody who helps you out financially."
When money talks it rarely raises its voice and the body language can be more important than the words themselves, experts say.
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Matt O'Connor, Broker Blacklisted Linked to Santos Aide Says She Was Told to Drop Firms, Chicago Tribune (Apr. 22, 1999)
Patricia Errera, chief investment manager in the Chicago Treasurer's office, testified at the trial of Treasurer Miriam Santos that she was ordered to cease doing business with number brokerage firms just days after some of the brokers complained to her about being hit up for political contributions on Santos' behalf.
Santos' lawyers raised a potential ethics problem for Errera, who admitted she has regularly made trades on her personal investments at no cost with a broker from Paine Webber whom she does business with in her city job. Errera is in charge of deciding which brokerage firms invest some $2.5 billion in city funds.
Santos lawyer Chris Gair suggested that Errera's no-commission deals with her broker could violate a city ban on employees accepting gifts of $50 or more from someone with whom they do city business.
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Editorial, Judgment on Miriam Santos, Chicago Tribune (May 4, 1999)
Ten years ago Mayor Richard Daley plucked a young lawyer from a promising career at Illinois Bell and put her on the fast track of Chicago politics. The ride crashed Monday.
A jury found City Treasurer Miriam Santos guilty of five counts of mail fraud and one count of attempted extortion, stemming from her heavy-handed tactics in raising funds during a dead-in-the-water campaign for attorney general.
Santos was, indeed, guilty. It became clear at her trial that she used the power of her office to demand contributions from investment houses that faced the loss of their city business if they didn't comply. The U.S. Attorney's office presented a strong case.
Santos grossly abused the power of her office. Yet it's hard not to come away with a discomforting sense that, by Chicago standards, she was as much clumsy as venal. Under pressure to raise money for the Democratic Party, she thought it appropriate to make explicit threats to private firms: Give to me or you lose business. In taped telephone conversations Santos was astonishingly blunt in her demands and threats.
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Bob Secter and Rick Pearson, Santos Bungled Art of Fundraising, Experts Say, Chicago Tribune (May 5, 1999)
Even in the brass-knuckles world of Illinois politics, the fittest need to abide by just a few simple rules to thrive.
Rule No. 1: Never pick up the phone to squeeze campaign money from a company that has public contracts.
Rule No. 2: Always delegate the money-collecting dirty work to a flunky.
Rule No. 3: Glare, seethe, or stare daggers if you must, but never utter a syllable that could be construed as a threat and captured by a hidden recording device.
On Tuesday, politicians across the state still were shaking their heads over how former City Treasurer Miriam Santos apparently broke each of those commandments, leading to her conviction on corruption charges and immediate ouster from office.
There is something of a Zen to fundraising in Illinois, a time-honored system of winks and nods that keeps prosecutors at bay like a sachet of garlic. "Legal extortion," is the way one Springfield lawmaker described the art form.
But Santos either failed to catch on to the game or played it badly.
What seemed amazing to many political veterans was how easy it might have been for Santos to stay out of harm's way and accomplish the same goal. Indeed, political pros thought the verdict would have little impact on the way they raise campaign cash simply because few considered themselves reckless enough to make the same mistakes as Santos.
"I don't think you say, 'It is time to belly up,'" explained one Democratic political operative. "But you might say, 'I am very disappointed you weren't able to help out.' The words are different and deliberately ambiguous, but the message is the same."
Indeed, truly savvy Illinois politicians say the secret is to be polite to a fault and leave the threats or punishments to others. "The rules are that you're really big on innuendo, really big on circumspection," explained Charles Wheeler III, a professor at the University of Illinois at Springfield and an expert on Illinois politics. "It's the ability of sending a message without actually saying anything and certainly not putting anything in writing or on tape."
In the view of many political veterans, the conviction set no new standards for fundraising conduct, but merely reinforced the porous rules in place.
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Monica Davey, Ex-Treasurer Insists She's Innocent, Charges Bias, Chicago Tribune (Feb. 8, 2000)
Santos also issued a stern warning to her former employees in the treasurer's office, some of whom publicly complained during her federal trial last year about what they said was her combative, and sometimes vindictive, management style. Three current employees of the office testified against her at her trial last year.
If they don't like her, she said, they should leave now because she plans to resume her duties as treasurer as early as next month. Though she was released last month, Santos cannot retake her job until the federal appeals court formally enters an order reversing her conviction.
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Fran Spielman, City Paid $370,000 While Santos Fought Charges, Chicago Sun-Times (May 6, 1999)
Chicago taxpayers paid $370,000 to a private company to oversee and evaluate the city treasurer's office while convicted treasurer Miriam Santos was preparing her ill-fated defense, records show.
Santos' former campaign manager said the company was hired to evaluate the treasurer's office Santos held for 10 years, providing information that might be used to her advantage during the re-election campaign against challenger Dorothy Brown.
"She told me the report would resoundingly validate her tenure and that it was going to be good for us electorally. I never saw the report," said Ken Jakubowski, who no longer is associated with Santos.
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Gary Washburn, If Santos Went Free, One May be Belly Down, Chicago Tribune (May 9, 1999)
If City Treasurer Miriam Santos had beaten he federal charges against her - if the jury hadn't been convinced that she tried to extort campaign contributions from big bucks brokerage firms - Patricia Errera has little doubt what her own fate would have been.
She describes it in a succinct two words: "Dead meat."
Errera, chief fund manager in the treasurer's office and star witness in Santos' trial, provided critical testimony detailing how she was ordered to cut off city business to brokerages that didn't cough up political contributions on behalf of her boss.
The federal government, Illinois and Cook County all have statutes that provide protection to whistle-blowers. But Chicago's City Hall, where corruption has been part of the landscape for decades, affords no such luxury to employees who call attention to ethics infractions or outright violations of the law.
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Robin Goldwyn Blumenthal, Quid Pro Quota? How Jesse Jackson Aims to Get More Pension-Fund Business for his Contributors, Barron's (May 21, 2001)
Since the Reverend Jesse Jackson unveiled his Wall Street Project four years ago, he has successfully prodded major companies such as Pepsico and AT&T to hire more minority-owned firms to help orchestrate stock and bond offerings. What few people realize is that Jackson and his associates are also making a multi-pronged effort to force the huge pension funds in his home state of Illinois to steer more of their money-management and securities-trading business to minority firms.
Two minority financiers and one source close to Jackson's camp told Barron's that minority firms must contribute to one or another of Jackson's organizations if they want to get in on the increased pension-fund work being handed out to minority firms. Some critics charge that Jackson's advocacy has evolved from social activism to private consulting, from helping to level the playing field to choosing the players.
As with any affirmative action effort, Jackson's push into pension funds has raised concerns that business could be awarded to minority-owned firms without adequate regard to cost or qualifications. If that were to happen, the millions of participants in the state pension funds would be the poorer for it.
One investment professional who can testify to Jackson's help in the business world is Chris Gardner, founder and chief executive of Gardner Rich & Co., a Chicago-based brokerage that works with institutional investors. "I am personally seeing the Reverend part the waters," Gardner says.
Gardner, who donates money to Jackson's entities, insists that there's "absolutely" no requirement that a minority-owned firm contribute to Jackson's organization to benefit from his advocacy efforts. Jackson himself has said the same thing.
But other familiar with his methods dispute that. Said one source close to the Jackson camp: "There is a quid pro quo. There are no freebies."
Jackson hasn't made any secret of his agenda to get more business for firms associated with him. Stroger, whose firm contributes to Jackson's Wall Street Project, calls Jackson a "conduit to the corporate CEOs. He talks to them, and they put in the order" for the business, Stroger says. Stroger's firm, among other contributors to Jackson's organizations, have been meeting with the boards of Illinois pension funds in recent months. Making the rounds with these foirms has been Michael Madigan, speaker of the Illinois House of Representatives.
In these meetings, the firms have been asking the pension funds to steer them 15% of their brokerage and asset management business, based not on the number of minority-owned investment houses, but on the African-American population in Illinois, one participant said.
Harold Doley, who as head of Doley Securities was the first African-American to buy a seat on the New York Stock Exchange, says because some firms affiliated with Jackson are sometimes asking for and getting higher commission rates, when other minority firms come in and offer to do the work for fees two-thirds lower, "it messes up the apple cart.".
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Christopher Cooper, Pension Board Gifts Criticized, The New Orleans Times-Picayune (Apr. 22, 1995)
Members of the board that oversees New Orleans city workers' retirement fund accepted a variety of gifts from consultants or money managers, including dinners at some of the city's most expensive restaurants, a municipal investigator said in a report released Friday.
All five members of the city's Municipal Employees Retirement Board, including the city's finance director, accept the gifts in kind from companies managing or seeking a chance to manage a piece of the city's $220 million pension fund, the report said.
The report said that Jerome Davis, the board's chairman and a Civil Service Department employee, accepted 35 gifts of food, liquor or merchandise from financial consultants in 1994. On Aug. 17, it said, Davis accepted a golf round, drinks, lunch and dinner from Bob Phillips of ASB Capital/Nations Bank. Phillips had just been named investment manager for the retirement fund.
The OMI investigation, which began in January, came amid a battle between the retirement board and Mayor Marc Morial over who has the authority to choose money management consultants for the pension fund.
Some board members have charged that Morial's administration arranged the investigation in an attempt to usurp the board's power to appoint the consultants. They said Morial wants the board to hire a local company that contributed to his campaign, the Harrington Hackett Co. Toni Hackett-Antrum, a partner in the company, is a longtime friend of Morial's.
Anonymous letter to SEC Chairman Levitt (Feb. 1999)
The letter, from an institutional money manager, expressed amazement "at how many managers are awarded accounts by public funds due to the money they have donated where there were other more qualified managers available."
The letter enclosed: (1) a solicitation to attend a $1,000 per plate fundraising dinner for Wayne Curry, Prince Georges County Executive in Maryland that was postmarked May 6, 1998, and (2) a notice from Curry's office that the letter writer's firm had been "selected to make a presentation for its Large Capitalization Core product(s) to the Prince George's Police and Fire Service Plans.
The letter writer stated that the "solicitation for donations came the same week that we were notified of our being selected to make a presentation. I was also told by someone involved in the search to let them know if I made a personal donation so they could let the officials know it came from within my firm. We refuse to make political donations and would rather be judged on merit."
Review copies of the correspondence, and judge for yourself whether the timing of the letters reflected a quid pro quo, or was just coincidence.
James Hirsch, Money Marketer: Tough Tactics Enabled Nick Lopardo to Build an Investment Empire, The Wall Street Journal (Sep. 14, 1995)
In 1992 and 1993, Lopardo, his wife, Diane, and 19 of his subordinates gave a total of $17,650 to the reelection campaign of Massachusetts Treasurer Joseph Malone, according to campaign finance records.
The contributions weren't made in Global Advisors' name and didn't violate any law. But on July 26, 1993, 13 Global Advisor employees, including Lopardo's secretary, made donations of up to $1,000, then the maximum for individual contributions. Last year Massachusetts passed a law prohibiting such "bundled" donations that arrive together from people at the same company. Lopardo says he didn't force employees to contribute to Malone's campaign but doesn't deny asking for donations.
However, several former and current employees who did contribute say it was difficult to turn down such requests from Lopardo, partly because he controls an annual bonus pool of more than $12 million. "I felt that since I was asked, it was in my interest to participate," says Richard Dunn, a former Lopardo subordinate who gave Malone's campaign $500 in 1992.
Malone sits on a three-member committee for the $7.5 billion Massachusetts State Teachers and Employee Retirement System Trust, which allocated $1 billion to a Global Advisors index fund in 1993. A spokesman for Malone says that Global Advisors was selected on merit after a competitive process and that financial contributions don't affect his votes on allocating state funds.
Lopardo says his own contributions to Malone and other candidates - he spent $18,300 on California candidates in 1994 - have nothing to do with Global Advisors but are made based upon who he thinks are the best people for the jobs. When Lopardo first approached the California Public Employees Retirement System (CalPERS), it had no money invested with Lopardo. CalPERS has since given him $9.5 billion to invest.
Whether the contributions helped or not, Lopardo has significantly increased Global Advisors' assets from governmental bodies. It now manages $32 billion of public funds, up from $3.6 billion when he arrived.
Back to Pay-to-Play Page ** Top - Massachusetts
Beth Healy, On State Street: Contributions in Spotlight, Boston Herald (Feb. 4, 1999)
Everybody in the financial district clams up at the mention of "pay-to-play."
Massachusetts' newly elected treasurer, Shannon O'Brien, tapped executives of investment firms, banks and other financial entities for about 8 percent of the $1.32 million she raised to run her campaign last year.
Putnam Investments execs wrote checks worth $5,250 to O'Brien's campaign from August through November of 1998 -- $4,500 of that after the primary, when she became the odds-on favorite to win. Putnam runs several stock portfolios for the state, but poor performance got Putnam fired from the bond side.
State Street Bank managers, whose huge custody contract with the pension fund is up for bid, donated $1,050 to O'Brien late in the campaign, most in small donations. Boston Capital Institutional Advisors executives shipped $3,250 to O'Brien's camp, and a host of employees from other firms, from Fidelity Investments and Pioneer Group to Thomas H. Lee Co., sent smaller sums to the campaign - but didn't miss their chance to show support.
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Steve Bailey and Steven Syre, Critics Hit State Street Global, Boston Globe (May 13, 1998)
In 1995, The Wall Street Journal outline a pattern of "bundled" contributions from Nick Lopardo, who runs State Street Global, the third largest money manager in the world, and other State Street Global executives to the campaign of Massachusetts Treasurer Joe Malone, who oversees the state pension fund. Lopardo, his wife, and other State Street employees have given about $4,000 this year to Malone's campaign for governor.
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Ellen Silberman, Malone Aide Probed -- SEC Reportedly Examining Investments, Boston Herald (June 6, 2000)
One of former Massachusetts Treasurer Joseph Malone's top campaign aides is under scrutiny in a U.S. Securities and Exchange Commission probe of invesmtents made by the state during Malone's tenure, sources say.
SEC officials are investigatin whether Steven Roche, Malone's onetime campaign finance chairman, and Treasury embezzlement scandal suspect Richard Arrighi, another key Malone fund-raiser, conspired with Treasury employees to offer special deals to favored brokers -- perhaps Malone donors, sources say.
The SEC could have eye-witness accounts to guide them through the transactions and help determine whether brokers were forced to "pay-to-play." Wendy Ferullo, the former Treasury who talked daily to brokers and securities dealers about the investments under scrutiny, is already cooperating with state prosecutors and plans to assist the federal probe, her lawyer said.